Economist Cameron Bagrie warns of recession, increase in unemployment rate in 2023

An independent economist is warning of a recession and an increase in unemployment over the next 12 months as inflation starts to take effect.

Statistics New Zealand will release the latest Gross Domestic Product (GDP) figures for the June quarter on Thursday, where the country will find out if it's in a recession. 

It comes after Stats NZ announced in June that New Zealand's GDP fell 0.2 percent in the first quarter of 2022.

For a recession to occur, there need to be two successive quarters of negative growth, meaning another decline in GDP over the June quarter would put New Zealand officially in recession.

Independent economist Cameron Bagrie told AM on Tuesday he expects to see a bounce back in the latest GDP figures. 

"I think market attention is mostly going to be on the GDP figures, which are going to show an obvious bounce back from a pretty suppressed March quarter where we hit the reverse button," he told AM co-host Ryan Bridge. 

"As Omicron faded, we're going to see a bounce back in the June quarter." 

Bagrie said it's been a case of "two steps forward, two steps back" over the past 12 months as Omicron spread in the community, but the economy has been stagnant.

"A lot of the stagnancy has just been because of supply. We haven't been able to meet demand because we've seen the damage to the labour force, productivity has been poor, so we've had a pretty flat year." 

But Bagrie warns the next 12 months could be a turbulent period for the New Zealand economy as the Reserve Bank continues to try to get inflation under control. 

"I suspect that flat year is going to continue into the next 12 months because the next 12 months is really when monetary policy is really getting its economic bite," he said. 

"The Reserve Bank is on a mandate to get inflation under control. They've got to dish out those hits, so it's the real economic story in regard to the slowdown, technically it's here, but I don't think we're going to see it within the actual numbers for probably another 12 months."

He said while the technical definition of a recession is two negative quarters of GDP growth, the indicator that will give an idea of the "real economic story" is what happens to the labour market.

"If we see growth going backwards and the labour market still strong as an ox, well to me, that's not going to be what's called a real recession," Bagrie said.

"We need to see the labour market start to loosen up, which means, unfortunately, the unemployment rate start to rise. Now, that's going to be late this year, 2023 story, and once we start to see that in combination with weak economic growth, and that's a story that the Reserve Bank needs to see in order to get the inflationary thief back in jail."

New Zealand's current unemployment rate as of the June quarter is 3.3 percent, which is a rise of 0.1 percent from the previous quarter.

There are approximately 96,000 people currently unemployed.

This data will be updated on November 2.